For years, a successful plaintiff in a suit to recover a debt or enforce a contract was able to recover its attorney’s fees from the defendant under Texas statutes. The courts frequently awarded attorney’s fee recoveries against all types of defendants under the statute, whether an individual, corporation, partnership, or other form of business entity.
Approximately ten years ago that changed significantly when courts started looking more closely at the wording of the Texas attorney’s fee statute. Those courts determined that the statute only allowed recovery against individuals or corporations. As the rulings gained traction, the courts routinely denied recovery of attorney’s fees from business entities such as limited liability companies and partnerships of all forms, holding that those types of entities are neither an individual or a corporation. Thus, if the company owing the plaintiff money was “Defendant, Inc.,” attorney’s fees could be recovered, but if the company was “Defendant, LLC” or “Defendant, LP” attorney’s fees could not be recovered. The result of those rulings did not make sense in light of the fact that more companies are being formed as limited liability companies, limited partnerships, and other entities as opposed to the traditional corporation.
Between 2015 and 2019, the Texas Legislature introduced three bills to correct that anomaly. All three of those bills failed. Finally, in 2021, the Legislature finally passed a bill correcting the situation. Under the new law that went into effect for lawsuits filed after September 1, 2021, a plaintiff can recover attorney’s fees from a “organization” indebted to it or that breaches a contract regardless of whether it is a limited liability company, partnership, or other type of entity.
The new legislation will have a real and meaningful impact. Now, companies that are owed money or are the victim of a breach of contract have the right to recover their attorney’s fees if they are successful in the lawsuit. This potentially eliminates the situation where every dollar spent reduces the net amount that may be recovered. Thus, the amount of its claim will not be eroded by the amount it must spend to pursue it. It also places the risk on the defendant that not only will it have to pay the debt and its own attorney’s fees (which are typically not recoverable under statute from the plaintiff), but will have to pay for the plaintiff’s attorney’s fees as well. That risk can result in a greater impetus to settle the dispute, and potentially result in a recovery sooner rather than later.